Annoying overdraft fees on insignificant purchases may be on their way out. Starting this summer, banks will have to get their customers to "opt in" if they want overdraft protection on debit card transactions. But the new rules won't necessarily ease your cash flow; banks are finding other ways to make the money back.
After all, $20 billion is a lot of money to leave on the table. That's how much banks made last year on overdraft fees on debit card purchases and ATM withdrawals, so banks are hard at work finding ways to get their customers to opt in.
"Customers will have a lot more choices," says Scott Talbot of the Financial Services Roundtable, which represents the nation's largest financial firms.
"We see one company saying, 'We simply won't charge overdraft fees'; another company saying, 'We won't charge for the first three overdrafts'; another company saying, 'We won't charge if your account is overdrawn by $10 or less.' "
Just this past week, Bank of America jumped out ahead of the new regulations, saying it will eliminate overdrafts on debit purchases altogether. If a customer doesn't have enough money in his or her account, the charge will simply be declined.
As it stands now, 57 percent of people say they plan to opt out. That's according to a survey conducted by Acton Marketing. Acton's Gary Gabelhouse says the company is helping banks develop strategies for getting their customers to opt in. If they handle the opt-in thing properly, he says, some banks could actually come out ahead by attracting their competitor's customers.
"There could actually be a net increase of fees to a bank, because you made it up on volume," he says.
Gabelhouse says there are some customers out there who really like overdraft protection — who want to be able to buy a sandwich even though they have no money in the bank and are willing to pay a $30 fee to avoid the embarrassment of being turned down at the check stand. Greg McBride of Bankrate.com says most overdraft fees are paid by relatively few people.
"It is a mistake that anybody could make, but the key is to only make it once if you're going to make it, and the fact was that 14 percent of customers were generating 93 percent of the overdraft revenue," he says.
Indirectly, those frequent overdrafters probably helped pay for the rest of us to enjoy things like free checking. Going forward, McBride says, that free checking is going to be harder to come by.
"There are always going to be unintended consequences. If you're one of those 75 percent of people who never overdraws your account, the fact that this may curtail the availability of free checking could prove to be an inconvenience to you," he says.
McBride says banks will always find new ways to make money — they are businesses, after all. Talbot prefers to put it a little differently.
"It's not so much a 1-to-1 connection between, 'Oh, we've lost revenue here; we need to make it up someplace else,' " he says. "Rather, banks will seek to find that mix of products and services their customers need, and of course there could be fees associated with that."
It's an open question whether a year from now consumers will be saying, "Thank goodness we got rid of those onerous overdraft fees" — or whether we'll fondly reflect on the good old days of fewer fees and easier access to free checking.